JONATHAN THOMPSON 02.11.21 003

Innovation and entrepreneurship need to be supported. Regional banks, with local knowledge and better understanding of business risks, can help small enterprises grow and thrive.

Small and medium-sized enterprises (SMEs) face multiple challenges in the current financial climate. Alongside a complex macroeconomic environment, repeated centralisation and rationalisation by the UK’s mainstream banks has created very physical barriers between SMEs and the debt finance they require. Furthermore, the UK’s high street banks are typically ambivalent about lending to businesses looking for between £500,000 and £5m, because of the perceived high risk and minimal reward.

The truth is that these banks have become too big to serve one of their main purposes: to facilitate business growth. For years, high street banks have cut back their frontline teams. The bank manager – once the bastion of regional financial markets – is long gone, and all decision-making on loans has been devolved to remote locations, often London or other ‘centres of excellence’. This creates a severe lack of regional empathy and also means that those banks lack the regional context so important to understanding and accurately assessing risk.

The government has shown some willingness to help SMEs through tax breaks and grants; however, it is not addressing the root systemic cause of the funding gap. These efforts only provide short-term relief to an issue that will continue to grow. SMEs make up a large proportion of the UK’s economy, and we should be doing everything in our power to facilitate growth and economic stability in the regions, and empower the next wave of entrepreneurs.

Applied technology

Speed of delivery is also a key problem with centralised decision-making. High street banks can take four to six months to process a loan application from end to end. For a small business looking for debt capital to support growth, or to simply keep the lights on in times of crisis, a protracted, unnecessary wait – with no guarantee of delivery – has the potential to cripple a business.

It is more important than ever to help create security and certainty in a market that is consistently being destabilised, to procure future growth and market sustainability

Technology is at the heart of many market challengers; it expedites processes that would have taken a long time a few decades ago, from cloud technology for data management to technologies that help assess risk and business sentiment, to name just a few. In setting up Bank North, we leverage this technology and use it to deliver our regional pod model, which co-locates frontline lending experts and local decision-makers to ensure lending expertise is local and decisions are delivered at pace. This combination of human capital and technology enables us to deliver a loan at up to 10 times the speed of the high street banks.

SMEs throughout the country have obviously struggled over the past few years, faced with so many anomalous world catastrophes, from the Covid-19 pandemic to the ongoing war in Ukraine. It is more important than ever to help create security and certainty in a market that is consistently being destabilised, to procure future growth and market sustainability.

Local expertise

SMEs regularly fall into the trap of pursuing the cheapest money on the market from high street banks. In many cases, this does not work. While it may be the cheapest debt capital, it is difficult to access, often only available to the strongest businesses that fit centrally-set policy and typically comes with a high level of rigidity, with no room for manoeuvre on terms.

In contrast, having local expertise allows regional banks to be more flexible in their support, because they have a more complete understanding of the business and its risks. Those who live in a particular area are the best placed to judge local economic conditions and adapt financing as needed. An agreement that suits both parties ultimately helps the business’s health and increases payment security for the bank.

It was local banks that helped drive the industrial revolution, and SMEs have lost many of the benefits of that due to mass centralisation. This lack of local expertise has meant that businesses across the UK have felt forgotten and struggled to get ideas off the ground, yet innovation and entrepreneurship need to be supported. A national rethink is needed, now more than ever. The sooner we serve the regions and close the funding gap, the sooner we will spread investment and truly level up the UK.

Jonathan Thompson is CEO of Bank North.

PLEASE ENTER YOUR DETAILS TO WATCH THIS VIDEO

All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker



For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Join our community

The Banker on Twitter